Falling rupee: Joy for some firms, sorrow for others

Falling rupee: Joy for some firms, sorrow for others

While several export-oriented Indian companies such as Cipla and Reliance Industries Ltd (RIL) are rejoicing at the prospects of the rupee falling further, others that are importing raw materials such as coal and oil might see a big hole in their bottom line.

RIL chairman Mukesh Ambani recently said the company had achieved its highest exports of Rs 2.39 lakh crore to 116 countries last year, accounting for 64 per cent of its turnover.

Besides, RIL continues to be India's largest exporter, accounting for 14 per cent of the country's total exports, he added.

RIL insiders say the rupee fall will be a big bonanza for the company. Its Jamnagar refinery complex had exported goods valued at over $39 billion last financial year. The rupee has already depreciated by 30 per cent in the last two years, thus giving a boost to RIL's net profit.

Falling rupee: Joy for some firms, sorrow for others

Indian companies that source raw materials locally but where prices are linked to international commodity rates will also feel the pinch. For instance, NMDC benchmarks domestic iron prices to international prices. Hence, the cost of local Indian steel companies sourcing from NMDC will go up.

Chief financial officers say they are now bracing for the rupee falling further to Rs 60 and Rs 65 versus the dollar by December.

"The Indian currency will remain on a weaker ground. First, Indian inflation is higher, compared to the US' one per cent. Hence, it's natural that differential inflation has to get reflected in exchange rate through real effective exchange rate, which is gradually happening," says Pranab Banerji, head of international finance at Essar group. "From 58.14 level today, there may be a short-term reversal of the rupee, but in the long run, the rupee will gradually move southbound."

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Image: Indian rupee noted in the shape of a kite.Photographs: Reuters.

Falling rupee: Joy for some firms, sorrow for others

The good news is that Indian exporters will be fiercely competitive in the global market due to such a depreciation, which will spurt export growth and as a consequence, the currency should rebound to certain extent.

Pharmaceutical companies Cipla, Wockhardt and Lupin are earning a substantial amount of their revenues from abroad. In fact, Wockhardt earns 80 per cent of its revenues from overseas, while Cipla is earning close to 55 per cent of its revenues from abroad and expecting it to go up to 80 per cent in two-three years.

Image: Indian rupee noted in the shape of a kite.Photographs: Chor Sokunthea/Reuters